Tuesday, 18 November 2008

Policymakers' worst fears have finally come true. The worst financial crisis in 80 years has weakened the world's major economies, with many of them heading for recession.

Apart from the US and Japan, the 15-nation eurozone has also officially fell into recession for the first time ever, as their economies shrank for a second straight quarter because of the world financial crisis and sinking demand.

France narrowly escaped, growing just 0.1 per cent in the third quarter after shrinking in the second quarter, and so have some other countries. But nobody knows how long can they be that lucky.

Here we take a look at some of the world's major economies in recession:

The US has finally slipped into recession and the economy is estimated to shrink 2.6 per cent in the fourth quarter, primarily stoked by worsening credit conditions.

Moreover, the unemployment rate in the country is expected to reach 7.5 per cent by the end of 2009, says a survey of 50 professional forecasters, conducted by US-based professional group National Association for Business Economics between October 28 and November 7.

According to 96 per cent of those surveyed, a recession has already begun. About half the forecasters estimate that recession - two consecutive quarters of contraction - started in the fourth quarter of 2007 or in the first quarter of 2008.

In the third quarter, the American economy shrunk 0.1 per cent and is widely anticipated to witness contraction in the coming months due to rising job losses, declining consumer spending and lack of credit availability, among others.

Japan's economy shrank 0.1 per cent in the third quarter, sending the world's second-biggest economy into recession for the first time in seven years and lagging market expectations for anaemic 0.1 per cent growth.

The contraction confirmed the global financial crisis has sabotaged growth in yet another major economy, with the euro zone already in recession, using the most common definition of two consecutive quarters of contraction.

The government also revised the second-quarter contraction to a larger 0.9 per cent slide, the biggest quarterly drop for Japan's economy in seven years, and Taro Saito, a senior economist at NLI Research, saw more dark days ahead for the Japanese economy.

Japan's gross domestic product figure translated into an annualised fall of 0.4 per cent, lagging a consensus market forecast for a 0.3 per cent expansion, government data showed. In a sign the global economic slowdown was dealing a blow to Japanese companies, capital expenditure fell 1.7 per cent in July-September.

It's official now. Britain is also in recession. A forecast published by the Ernst & Young Item Club claims that Britain is now in a recession that will last for 12 months, with only a weak recovery in 2010.

Peter Spencer, the chief economist at Ernst & Young, said the economy fell sharply in the previous quarter and will shrink for three more quarters before bottoming out in the latter half of 2009. Meanwhile, GDP will drop by 1 per cent next year (the first negative growth for 16 years) and will grow by just 1 per cent in 2010.

Meanwhile, the British Chambers of Commerce has also said that it is pretty dismal and there is going to be a recession. Britain has been on the brink of recession since the end of June, when the economy came to a standstill with official growth at zero.

As the government struggles to avoid a recession, economist Roger Bootle believes that interest rates in the UK could fall below the 2 per cent mark, the lowest figure since the Bank of England was established in 1694.

Hong Kong slipped into recession in the third quarter as exports were hit by weakening global demand and consumption was hurt by a drop in asset prices and concern about the economic outlook.

Compared with a year earlier, GDP grew 1.7 per cent, well below an expected 2.6 per cent increase, and the government slashed its full-year growth forecast to between 3 and 3.5 per cent from a range of 4 per cent to 5 per cent.

The economy's performance in July-September was the weakest since the SARS outbreak hammered consumer and business confidence in the spring of 2003 and highlights Asia's vulnerability to a global economic downturn.

Singapore officially slid into recession in October after falling consumer demand from the US and Europe hammered its manufacturing exports.

Its economy contracted by 6.3 per cent in the third quarter, on an annualised seasonally adjusted basis, having shrunk by 5.7 per cent in the second quarter of 2008.

This forced the government to cut its growth forecast for this year from 4-5 per cent to 3 per cent.

Singapore's economy, which is heavily dependent on exports to the developed world, was one of the first in Asia to be hit by a global economic slowdown.

Germany, the largest euro economy, shrank 0.5 per cent in the third quarter as its main source of growth - exports - dropped and it could no longer rely on household demand to power the economy.

The Federal Statistics Office reported that German gross domestic product contracted 0.5 per cent in the third quarter - more than the 0.2 per cent decline that had been anticipated. That follows a decline in the second quarter of 0.4 per cent, a slight revision from the 0.5 per cent drop previously announced.

German economic activity had got off to a good start in 2008, expanding by 1.4 per cent in the three months to March. But the country has been hit by slumping activity in its major export markets while domestic consumption has remained at low levels. Corporate investment has suffered as well from a sharp decline in the business outlook.

In October, German business confidence hit its lowest point in more than five years, a widely-watched survey by the Ifo research institute showed.

Italy has officially slid into a recession as the euro zone's third biggest economy shrank 0.5 per cent in the third quarter from the previous three months, its sharpest quarterly decline since the end of 1998 and the same rate of decline reported by Germany, Europe's biggest economy.

Italy's economy has been hit by slowing consumer spending in the face of rising fuel and food prices.

The Rome-based ISTAT said consumer prices are up 4.1 per cent and that consumer spending for the year would grow just 0.1 per cent if it is assumed to remain unchanged for the rest of the year.

Before the release of the official data, Italy's main business lobby Confindustria had already declared Italy in a recession.

Estonia's economy shrank again in the third quarter - by an annual 3.3 per cent, thus clocking up the second-worst performance (after Latvia) in the 27-nation European Union.

Estonia and Latvia now lead the Eastern European slowdown, following repeated warnings over the past year of about the risks of an economic 'hard landing', warnings which were not unfortunately headed due to hopes that the eurozone itself would hold out against the US downturn.

Estonia's economy is contracting the second fastest, since Latvia's economy shrank 4.2 per cent in the third quarter, and currently has the worst growth rate in the EU.

Latvia's economy shrank 4.2 per cent in the third quarter, and currently has the worst growth rate in the EU.

Its economy has entered a period of deep recession after three years of stellar growth, when it led all EU members in gross domestic product growth.

Latvia's Prime Minister Ivars Godmanis has also said that the once vibrant 2004 European Union newcomer will fall into sharp recession next year, saying he expected the economy to contract by 1 per cent.

The International Monetary Fund expects the Latvian economy to shrink by 2.2 per cent in 2009 from its prediction of 0.9 per cent negative growth this year.

Ireland officially fell into recession in September itself. According to the Central Statistics Office, its once-aggressive economy contracted by 1 per cent in the first six months of the year. Dubbed the Celtic Tiger during massive growth in the late 1990s, the business sector is now facing its most difficult period since high unemployment and emigration hit the 1980s.

The Department of Finance recently pointed to the crumbling property market and the international credit crunch for the alarming figures. A government spokesman said: "As expected, lower levels of new house building had a major restraining influence on growth in the second quarter, as is evident from the very weak investment figures.

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